Disclosures in Residential Real Estate Transactions

One of the biggest decisions in a person’s life is the decision to buy real estate. The excitement that is often associated with the purchase of a new home can be overshadowed by disappointment once the newness wears off and defects become apparent. Generally, the rule of “caveat emptor” — buyer beware — requires the buyer to conduct a reasonable inspection of the premises to discover defects and imperfections. In short, the buyer assumes the discoverable risks. In some circumstances, however, the seller and the seller’s agents may be liable to the buyer.

Seller’s Duties

In a real estate contract, a seller represents to the buyer that the seller owns the title to the property being sold and that the title is marketable and free of defects. As for the property itself, state laws impose varying responsibilities on a seller to disclose known defects to the buyer. Some states require disclosure of all defects known, while other states only require disclosure if the buyer asks about defects. If, for example, the buyer asks about whether there has been any flooding or termite infestation in the past, the seller must answer in good faith.

Disclosure Duties of the Seller’s Broker and Agent

The seller’s broker and agent work for the seller and have a duty to act in the seller’s best interests. The seller’s broker and agent do not usually work for the buyer. With respect to disclosure of defects, the broker’s duty generally follows the seller’s duty to disclose known material facts unless a state law requires additional disclosures. Some states require the broker and/or agent to conduct a thorough inspection of the premises to identify the true condition of the property.

Violation of the duty to disclose

If the seller, broker, or agent violate the duty to disclose, either or all of them may be liable for damages and the buyer may be entitled to rescind, or cancel, the contract.